Lecture 11 Flashcards
What types of things affect how a company prices their products?
- Internal environment
- Company’s Costs, Existing Product Line, Product Life Cycle - External environment
Competition
* How are competitors pricing similar products?
* Are there substitutes?
* How will competitors respond to our price?
Economic Environment
In a good economy, consumers are generally more accepting of price increases than in a bad economy. When the economy is bad, low-cost businesses do well
Consumers
What are consumers willing to pay for our product?
Distributors
Is the retailer or wholesaler pressuring us to adopt a price?
Legal Environment
In some markets (e.g., energy, drug prices) the government regulates prices.
What are the different pricing objectives?
- Profit-oriented objectives
- Make an acceptably high profit to meet company goals (e.g., paying the small business owner; satisfying shareholders)
- Often, companies set a “target return” (for every $1 I invest in this product, how much do I want to make?) - Competition-oriented objectives
- Focuses on capturing market share (often through lower prices)
- It is easier to estimate market share than “maximize” profit
- Lower short-term profits in favor of higher long-term profits - Sales-related objectives
- Focuses on selling a certain number of product units
- Often used as a short-term strategy when companies over-produce a good.
- Profit- or competition-oriented strategies make more sense in the long-term - Customer perception-related objectives
- How do the consumers perceive the price
- Often higher prices signals exclusivity and luxury, while lower signals accessibility - Distribution Intermediary-related objectives
- The demands of distribution intermediaries (ex: Walmart) can drastically affect the pricing for many producers
What are the different pricing strategies?
- Pricing Strategies determined by Competitive Pressure
- Price leadership: leader strategy, adjusting a price and expecting competitors to follow
- Competitive parity strategy: setting the same price as the market average or leader
- Low-cost strategy: lowest price on the market, only viable for businesses with a sustainable competitive advantage
- Pricing Strategies determined by Consumer Preferences
- Setting a price that will project the desired image of the product to customers
- Price signaling (ex.: prestige price)
- Pricing Strategies determined by Business Costs
- Cost-plus pricing
- This means adding a small, sustainable margin above the cost to produce the product
- Ignores info about consumers and competition
- Pricing strategies for a product line
- Complementary product pricing: central product low price and complementary goods at a high price
- Price bundling: group of items at a lower price that individual prices combined
- Customer value pricing: pricing a product very competitively, but offering fewer options than others in the line (ex.: cheaper plane tickets but nonrefundable)
- Price and product strategy
- Skimming strategy: setting a higher initial price than is later lowered
- Penetration strategy: initial low price (price often remain low)
- Price reduction strategy: reduce price over time to deal with increased competition
What is sales promotion?
The media and non-media marketing pressure applied for predetermined, limited period at the level of consumer, retailer, or wholesaler in order to stimulate trial, increase consumer demand, or improve product availability.
What are the two types of sales promotion?
- Pull strategy
- Targets the consumer
- Aims to increase demand (heighten their desire for the product) to attract them to the point of sale
- Ex.: Discount coupon, contest, demonstration, promotional items, samples, bonus, loyalty program, etc. - Push strategy
- Target the distribution channel members (retailers or wholesailers)
- Aims to motivate them to develop sales to the end consumers. “Push” the product through the distribution chain to the end consumers.
- Ex.: Gifts, sales contest, promotional items, sales premium (bonus to those who sell more), retailer premium (bonus to those who buy more).
What are the benefices and weaknesses of sales promotion related to price strategy?
Benefices:
- Push potential buyers to action
- Particularly good when consumers are considering different options
- Easy to put in place and relatively inexpensive
Weaknesses:
- Overuse of promotions with price cut will reduce the product’s value in the long run (promotional price becomes the normal price for consumers)
- Excessive use of promotions may also suggest to consumers that the normal price of the product is too high and must be reduced.
- Overuse can also lead consumers to put too much importance on the price instead of on the brand, which can reduce brand loyalty.
How do you set up a promotional campaign?
- Situation analysis
- SWOT analysis to assess internal and external environment, including competition
- Figuring out: how are we currently positioned? Which target is the most appealing? Positionning? Allocation of budget? Key benefits?
- Planning
- Setting and prioritization of communication objectives, selecting performance indicators, defining the key message, choosing the communication media, allocating budget and resources
- Creation and implementation
- Producing advertising materials
- Deployment and follow-up
- measuring and updating performance indicators
- optimizing and adjusting initiatives, if possible and if necessary
What are the different types of communication channels?
- Paid Media: Content providers that sell space to advertisers (advertising, sponsorship)
- Owned Media: The broadcasting channels that belong to the brand (public & media relations)
- Earned Media: Content not generated by the brand (e.g., word of mouth or positive news stories) (direct & relationship marketing, experiential marketing, content marketing)
What are the different categories of digital marketing?
- Outbound marketing: when consumers are online, how can we make sure they see our brand?
We measure the performance of outbound marketing using…
* Ad Impressions: How many consumers saw the ad?
* Click-Through Rate: What percentage of the “impressions” resulted in consumers clicking through to our website?
* Cost per Click-Through: The cost of an advertisement divided by how many click-throughs it generated
* Purchase Rate: Complex mathematical models can help advertisers predict if seeing an ad led to a sale (online or offline)
- Paid listing: pay money to be listed at the top of search engines (identify key words relating to their offering)
- Display advertisement: advertisements that appear on web pages based on their browsing history or native advertising (brands create content that is embedded into the editorial content of a website)
- Inbound marketing: The process whereby a business improves its position in the results provided by a search engine
- Mobile marketing: marketing to consumers on mobile devices
- Social media: using social media to have conversation with your customer
What are the advantages of being active on social media?
- The ability to respond quickly to current events
- The ability to engage directly with consumers (and other brands)
- The ability to target consumers though influencer marketing
What are the different steps of the selling process? Describe them.
- Prospecting
- seek out potential customers, create a target list and decide how much effort to dedicate to them (are they worth it?)
- Identify (data, Internet, networking, etc.); Solicit (seek and meet); Validate their interest (to invest time or not); Follow-up (plan a meeting) - Pre-approach
- Prepare for the meeting with the customer, set SMART objectives, it shows that you listen to them and care for their need.
- Determine customer profile and use preparation tools - Approach
- Initial contact, general interest message (our company…( and gentle/smooth transition - Needs assessment
- The art of asking questions to correctly identify the needs - Presentation of a business solution
- List needs, prepare business proposal, present a business solution, handle the customer’s objections and resistances - Handling objections
- Acknowledge the objection, identify needs, present a business solution adapted to the customers needs, validate the business solution - Closing the sale and gaining customer commitment
- Follow-up
- If there is a problem, fix it -> customer satisfaction
